How Does Leverage Relate to Margin Requirements in Futures Trading?
Leverage is the ability to control a large futures contract value with a relatively small amount of capital, which is the margin. The margin requirement determines the maximum leverage available.
A lower margin requirement means a trader can take on a larger position size relative to their capital, thus increasing leverage. High leverage amplifies both potential profits and potential losses.
Exchanges set margin requirements conservatively to limit systemic risk.
